Monthly Wrap: Euro bounces back after Germany sidesteps technical recession

Philip McHugh December 11th 2019 - 2 minute read

Key Takeaways:

  • Euro benefits as Germany narrowly avoids technical recession.


  • Dovish ECB outlook set to limit single currency gains.


  • EUR Monthly lows: £0.83, $1.09, C$1.45, A$1.60, NZ$1.68


  • EUR Monthly highs: £0.86, $1.11, C$1.47, A$1.63, NZ$1.74

The euro experienced a sigh of relief as the German economy avoided falling into a state of technical recession in the third quarter, temporarily easing anxiety over the health of the Eurozone outlook.
As quarterly growth defied forecasts to deliver a positive 0.1% reading this encouraged bets that the German slowdown could be bottoming out.
However, worries over the outlook of the Eurozone economy soon resurfaced as November’s raft of manufacturing and services PMIs pointed towards continued weakness.
With the service sector showing a loss of momentum as the end of the year approaches the risk of a weaker fourth quarter growth rate picked up, in spite of a modest improvement in manufacturing.
EUR exchange rates also came under pressure after the White House unveiled fresh proposed tariffs against a variety of French produce.
The threat of further trade disruption weighed heavily on the single currency, given the drag that US-China trade tensions have already had on the Eurozone economy.
As November’s German consumer price index failed to pick up as forecast, slumping -0.8% on the month, the lacklustre inflation outlook added to the case for European Central Bank (ECB) dovishness.
If the ECB maintains a cautious stance at its December policy meeting this could see the euro come under renewed pressure.
Markets expect new ECB President Christine Lagarde to maintain a similar level of dovishness to her predecessor, keeping alive the odds of further monetary loosening to come.
However, if Lagarde surprises investors with a less dovish message EUR exchange rates could find a strong rallying point.
December’s Eurozone manufacturing and services PMIs may put an extra dampener on the euro unless activity shows greater signs of resilience.
Another underwhelming set of PMIs would raise the risk of a disappointing fourth quarter gross domestic product, prompting fresh anxiety over the economic outlook of the currency union.
Any deterioration in Eurozone trade figures could equally drive investors to sell out of the single currency in the coming weeks.

Written by
Philip McHugh

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